Watch January Market Indicators At Your Own Risk

CHET CURRIER COLUMNIST

They should be easier to give up than tobacco, fatty foods or the lottery. Like those other indulgences, they can be devilish troublemakers masquerading as innocent pleasures.

One of the contrivances we speak of, the Super Bowl Indicator based on the National Football League's annual championship game, is already fading from public attention after hitting a losing streak.

Others persist. For evidence of the mischief they can do, look at the well-known "January barometer" in 2003.

This indicator says that the first month of the year in stocks portends the likely outcome of the year as a whole. Historically, "the JB has registered only five major errors for a 90.7 percent accuracy ratio," says Jeff Hirsch of the Hirsch Organization, which popularized the indicator in its annual Stock Trader's Almanac.

Alas, one of those misfires came last year, when the Standard & Poor's 500 Index declined at a 26.8 percent annual rate in January, according to my Bloomberg. The index subsequently swerved in the opposite direction, finishing the year with a 28.4 percent gain including dividends.

A year ago at this time, stocks were reeling from a three-year bear market. Any negative signal was easy to take as confirmation that the best place to be vis-a-vis the stock market was as far away as possible (or, heaven forfend, betting on a further decline in a vehicle such as a bear fund).

Anyone who hopes to succeed long-term in the stock market can ill afford to miss a year like 2003. If we assume that stocks average a 9 percent annual return over time, last year brought three years' worth of the good stuff.

The 2003 miscall was an insult added to the injury inflicted in 2001, when the January barometer pointed to a good year and the S&P 500 wound up with an 11.8 percent loss.

Unlike the full January barometer, an "early warning indicator" based on the first five trading days of the month gave an accurate thumbs-up last year. Only thing is, some interpretations say it's extra-negative when the full month fails to confirm the first five days. By that standard, all the signs in 2003 were bad news.

As for the Super Bowl indicator, one best-bet prediction is that you'll see far fewer feature stories on it this year. It's old, it's tired, it's been hashed over way too often -- and it lost its mojo long ago.

For those who still care to remember, SBI purported to predict what stocks would do based on the Super Bowl winner's league of origin. It was wrongly bearish in 1998 and '99, then wrongly bullish in 2000 and 2001.

By '01, just trying to get a reading from the indicator had become so complicated as to spoil any remaining fun. The Baltimore Ravens, who beat the New York Giants 31-7 that year, were from the American Football Conference (bearish), but had previously been the original Cleveland Browns of the old National Football League (bullish), not to be confused with the present-day AFC Cleveland Browns created as an expansion team to take their place.

Last year's winner, the Tampa Bay Buccaneers, presumably provided a correct bullish signal, being from the NFC and all -- except that the Bucs are also an expansion franchise. They started play in 1976, nine years after the market indicator began doing its putative thing.

The Super Bowl indicator never made the slightest market sense. The January barometer, while not nearly so far-fetched, still suffers from the fatal flaw of pretending to do the impossible.

"Can anyone predict the future? No," reminds the author of one of the livelier newsletters on any financial subject, John T. Reed's Real Estate Investor's Monthly. "Asking me or anyone else to predict the future implies that you believe clairvoyants exist. They do not. Neither does the Easter Bunny."

Be it resolved: No indicator, now in existence or yet to be invented, is of any reliable use in divining the stock market's future. The whole business is superstition, pure and simple.

If I happen to sneak a peek at the January barometer or the Super Bowl Indicator later this month, my interest will be purely journalistic. Any other view implies that I make New Year's resolutions I cannot keep.

Chet Currier is a Bloomberg News columnist. He can be reached at ccurrier@bloomberg.net.